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Irrational Expectations

The reactions to my posting on the economic case against the GPL reminded me yet again why failure to understand basic economics often becomes more toxic in people who think they understand a bit about the subject. In this mini-essay, I’ll take a look at the most important (and misleading) of the superficially clever arguments I saw in responses.

Here it is: Markets don’t seek efficiency because investors aren’t rational. Yeah, well, gas molecules aren’t rational either, but they obey very simple regularities in large numbers. Rational-expectations theory doesn’t actually require individual investors to be rational, it merely predicts that en masse they will behave as if they are rational.

Reality backs this up; if investors weren’t good at rapidly folding information into prices, it would be possible for humans to beat the stock market by applying an algorithm – but, in fact, even the savviest professional money managers notoriously do no better than chance over long periods.

“Over long periods” – timescale is important. Computerized trading can, in some specialized ways, beat the stock market, but only because it can react faster than a market mostly composed of humans can equilibrate. Speculative bubbles affecting the entire market are random excursions obeying a sort of power law – the more irrational they are, the more quickly they pop.

Unless, that is, the bubble is being continuously pumped by a political failure. The debt crisis that has spun the U.S. into recession is often portrayed as a sort of inevitable comeuppance of free-market capitalism and speculative greed, but it doesn’t take a lot of digging to discover that massive policy errors underlie it. Many of these are mistakes that neoclassical and Austrian economists have been sounding warnings about for decades to no avail.

Here’s one: the Fed held real interest rates artificially low for decades before the CDO collapse, pumping the speculative bubble in real estate. Here’s another: an unknown but probably large percentage of those non-performing mortgages were issued by banks under political pressure to make enough loans to poor people (especially poor people who weren’t white) through regulations like the Community Reinvestment Act. Here’s third: Fanny Mae and Freddie Mac were operated as a campaign-cash cow and fountain of patronage jobs by a coterie of powerful politicians. Mainly, though not exclusively, Democratic politicians, which is why the Obama administration has no interest in investigating the corruption and self-dealing that went on there.

Here’s a safe rule: whenever you hear a politician huffing and puffing about market failure, make the largest bet you can that he is covering for a regulatory or political intervention that actually created the problem, usually one he was personally involved in perpetrating. You are extremely unlikely to lose.

Mostly I agree with Eric. One thing to consider, though, is that investers act rational (as a group) when they have good information. Regarding the housing bubble, I think many of the securities were so complex that it took longer then usual for investors to process the fact that they were very risky. This in turn, prolonged the growth of the bubble. I can't say whether it prolonged it by a few months or a few years, but I do think it was lengthened, and, of course, the resultant crash worsened.

Of course, it is possible that rating agencies experienced political pressure to give sub-prime saturated securities good ratings. I don't know whether that occured or not. My feeling though is that even if they hadn't, it would have taken investors and ratings agencies longer then usual to process the risk associated with these securities.

I'm sure Eric has heard this line of reasoning before but someone has to start the discussion.

It's hard to argue with the plethora of cheap commodities delivered by the semi-capitalism we are living under now. My complaint with an over-obsession with markets is that simple optimisation of processes does not necessarily lead to desirable outcomes, where 'desirable' is necessarily subjective and culturally specific. Does pay for performance for teachers, for example, lead to better teaching (hard), or merely optimisation for grades (easy)? It is dependent upon having meaningful tests that cannot be easily gamed. I suppose you would suggest that if people were willing to pay for it, a school with such tests would arise under pure capitalism. Where I live, as universities have become more 'business-like', e.g. focusing on enrolments etc, academic merit has plummeted.

I think John's point reveals what is the underlying reality of the "markets aren't rational" argument. When people say that actors in a market aren't rational, oftentimes what they really mean is that actors in a market don't make the same choices as they would.

The very idea that the outcome of a market is not the "desirable" outcome is patronizing. The outcome of the market is the most desirable, where the goal is to maximize the desire of all people corporately. What "the market" means here is this: we went round to every individual involved, and found out how much they wanted out of the various possible outcomes. We used a special truth detection mechanism to find out what they really wanted rather than what they *say* they wanted. We weighted these up, and convinced the providers of goods and services to make the goods and services in exactly the right proportion. We did all this with a very small cost, which we distributed appropriately to the providers and consumers.

(BTW, the special truth detection mechanism is called "put your money where your mouth is.")

The counter argument is that wise people (such as governments) believe that a different outcome would be better. But how do they know? To say you know more than millions of other people's weighted decisions is the height or arrogance. Of course there are irregularities that make the market outcome less than perfect (transaction costs, and information deficits.) But do we really think that organizations that brought us "oil for food" can do any better, ever?

The case that John mentions in particular is a curious one. Education. The fact is that children are educated today in almost the same way they were one hundred years ago. There are some improvements, but it is nibbling at the edges rather than radical improvements. The problem is that culturally our "education" system is really a combination of several things together: teaching kids academics; teaching kids sports; teaching kids social conventions; teaching kids politically correct behavior; providing a free baby sitting service for parents who are at work; providing jobs for educators; providing a forum for children to learn interpersonal interaction; and probably a few other things I forgot.

The goal of parents is usually a complex mix of these things. However, by eliminating the market in education (by nationalizing it and putting it on welfare) politicians only get to make decisions about what is a desirable outcome. With a market driven education system where parents focused on the results they wanted, education would be radically transformed. Studies I have seen indicate that children can learn the fundamentals of literacy and numeracy in about 100-200 hours of instruction. However, our schools take 6000 hours to provide the same (and often don't even achieve it in that timeframe.) Why they hell aren't kids taught reading with Kindle like devices with speech recognition? Consider foreign language education. If you were to devise the worst way to teach a foreign language, it would be to do it in an institutional setting, with two or three hours a week in a class room for years on end. In other words, precisely the way it is done is schools. Rosetta Stone software can get a person functional in a language in a six weeks. (I know I have seen it happen.)

In 1984, the Internet was liberated from government control. 'Nuff said.

Funny you should mention education. America seems to have a unique case of UR DOING IT WRONG on that front. The nationalized school systems of the rest of the developed world far outstrip the quasi-nationalized American system, leading me to suspect other factors rather than nationalization per se: special interests, corporate dollars influencing the school system to produce worker-units rather than citizens, and culturally ingrained anti-intellectualism and religious fanaticism are probably bigger factors.

Read Gatto to understand the real history of American education, and why it fails.

To be honest, arguing that, for example, European schools are better than American schools, is much like claiming that GM is a better run car company than Chrysler. It is probably true, but frankly the problem is that they both suck for much the same structural reasons. Nationalization in itself is not the problem. The problem is that people other than the consumers direct the output, and you get what you always get in such situations: self righteous pomposity, and rigging the system to the benefit of the elite controllers.

I am very familiar with Gatto. As you no doubt know he is an advocate for home schooling, and in fact the more radical end of that movement called "unschooling." What both of these represent is moving control of education back toward the consumer, away from the elite. Gatto, I assure you, is no fan of European schools.

> The very idea that the outcome of a market is not the "desirable" outcome is patronizing.

It depends on what desirable means. Desirability, with your definition, is the whim of the masses. What if desirability is something higher and greater, such as virtue, or beauty, or truth? What if that which will make man happy requires individual restraint, rather than each agent acting according to its momentary self-interest?

I tend to be pretty paleo-libertarian in general, because I think it's futile in a modern liberal democracy to expect that anyone who wants to plan things out to maximize the outcome of a large system will fail. I do not, however, pretend that the free market, as great as it is at producing goods and services people want to buy, is actually going to maximize good in the abstract.

You can define "desirability" any way you want to. I hope you will grant me the right to do so too, and I hope you will grant that right to the 300 million consumers in the USA too. If you do, and if you take their opinion seriously, the market is the only means of measuring the corporate measure of desirability.

Perhaps you are an advocate of virtue, beauty and truth. But both virtue and beauty are subjective things. Truth is, largely speaking relative. I think that painting of sunflowers is pretty ugly, but someone paid $25 million for it. Good for him. I'd give him $25 for it. Some people think rap is virtuous, beautiful and represents truth. I don't. I like 80s soft rock. I like Abba, I like Pink Floyd. Perhaps you like something else. I personally think cities are beautiful, perhaps you prefer mountain streams, or ocean waves. If the government rationing body (or one of their sub departments like the National Endowment for the Arts) gets to choose, then only the lucky winners get resources. In the market anything worthwhile (in the judgment of everyone) gets resources.

I don't know what "maximize good in the abstract" means, but, market inefficiencies aside, the market produces some close approximation of the maximum good in the concrete. The alternatives are not pretty. (Check out the beauty, virtue and truth in Soviet Russia or modern day Iran if you doubt that.)

I think I'm with Aaron on this one. On one hand, the lowliest forms of governments – i.e. democracy or tyranny/dictatureship, as the two lowest, see Plato why – should be, as much as possible, Libertarian, because they represent the worst instincts of the masses, thus, at least, if they are fairly Libertarian, the better kinds of people are not forced to obey the worser kinds. Now if we were talking about a different kind of government than democracy or tyranny then not… but that's unrealistic now.

However, I don't like your value-agnostic relativistic-liberal argumentation. Of course objective good exists. We just don't know for sure what it is. But it's existence can be derived from the fact that people debate about it.

See, nobody debates about whether Thai food is preferable over Chinese or not – we understand it to be a matter of subjective preference and no one except or close friends can be expected to be interested in our subjective preferences.

But the very fact that people debate, say, classical music, classical culture over pop culture or po-mo means one or the other must be objectively better. People never or rarely debate about mere tastes or preferences.

OTOH the very fact of the debate means we don't know what the objective good is. I mean if we would know it, we would just measure it like length or weight can be measured and when it's measured it's not debated thereafter. It's not measured yet, it is still debated, therefore we don't know what the objective good is.

So, our job is to look for the objective good, to try to appromixate it, to guess it, to search for it.

Never falling into any of the above extermes, relativism (your view) or monism (f.e. the Fundies of religions or the Commies are monists).

This view I described here is called Pluralism, more info: google John Kekes. The great middle way between relativism and monism: yes, there is objective good, no, I don't know what it is and neither do you, but we can – and should – try to guess it, look for it and approximate it and debate it and all.

Or, you can call it reading too much Plato :-) Still better than a value-agnostic relativism, to me that's just too non-judgemental, too often fails the test of common sense.

I think I'm with Aaron on this one. On one hand, the lowliest forms of governments – i.e. democracy or tyranny/dictatureship, as the two lowest, see Plato why – should be, as much as possible, Libertarian, because they represent the worst instincts of the masses, thus, at least, if they are fairly Libertarian, the better kinds of people are not forced to obey the worser kinds. Now if we were talking about a different kind of government than democracy or tyranny then not… but that's unrealistic now.

However, I don't like your value-agnostic relativistic-liberal argumentation. Of course objective good exists. We just don't know for sure what it is. But it's existence can be derived from the fact that people debate about it.

See, nobody debates about whether Thai food is preferable over Chinese or not – we understand it to be a matter of subjective preference and no one except or close friends can be expected to be interested in our subjective preferences.

But the very fact that people debate, say, classical music, classical culture over pop culture or po-mo means one or the other must be objectively better. People never or rarely debate about mere tastes or preferences. Same stuff for Linux-Windows-Mac – all that hot debate means there must be one _objectively_ better, that debate is about much more than just personal tastes.

OTOH the very fact of the debate means we don't know for sure what the objective good is. I mean if we would know it, we would just measure it like length or weight can be measured and when it's measured it's not debated thereafter. It's not measured yet, it is still debated, therefore we don't know what the objective good is.

So, our job is to look for the objective good, to try to appromixate it, to guess it, to search for it.

If you think about it makes perfect sense f.e. about the Linux-Windows-Mac or open-closed source debates here: everybody assumes one is objectively better, nobody knows for sure which one is i.e. nobody can prove it beyond doubt, nobody can prove in the same way you can prove beyond doubt that one object is heavier or longer than the other – but we all are trying to find it, to approximate it, we all are searching for it.

Never falling into any of the above extermes, relativism (your view) or monism (f.e. the Fundies of religions or the Commies are monists).

This view I described here is called Pluralism, more info: google John Kekes. The great middle way between relativism and monism: yes, there is objective good, no, I don't know what it is and neither do you, but we can – and should – try to guess it, look for it and approximate it and debate it and all.

Or, you can call it reading too much Plato :-) Still better than a value-agnostic relativism, to me that's just too non-judgemental, too often fails the test of common sense.

I never argued that there is no such thing as objective good. Clearly some things are better than others by some objective measure. For example, my nephew's finger painting is not as good as Da Vinci's Mona Lisa, objectively speaking. However, even disregarding the financial aspects, I'd still rather have the former than the latter hang on my refrigerator. There are other measures of choice beside absolute objective quality. So desirability is not simply a function of objective quality.

The issues you raise are a perfect example of this. Very few things can be measured in one dimension. Weight and length perhaps. But Linux verses Windows verses Mac? Of course not. There are millions of dimensions of comparison. "I like complete control", "I'd prefer good choices are made for me automatically"; "I want to be able to run this esoteric piece of software", "I want to read my email and browse the web only", "I prefer pretty", "I prefer functional", "I wanna see the source man — closed source is tyranny", "I wouldn't know what to do with the source if I saw it.."

Any decision a person makes is a balance of these different priorities and preferences. Linux is not objectively better than Windows, Windows is not Objectively better than Linux, in isolation anyway. Which is better depends on the context of the selection. Every person has a different context, so each person's choice is different. Each person's objective best is different.

Based on this, I again reiterate the question: how the heck does Barak Obama know whether Linux is better for me than Windows? (Or, whether I want to save 5% for retirement or 0%, or or whether I want to pay for insurance against prostate cancer, or cervical cancer?)

In "Who Wants to Be a Millionare?" apparently 91% of "Ask the audience". gets the answer right, yet "Phone a Friend" it is more like 66%. This is a perfect illustration of the wisdom of crowds verses the wisdom of experts.

On Barack: I think both Aaron and me fully agree with you that as long as governments are populist – i.e. democractic or tyrannical – then they better be as Libertarian as possible. So there is no argument here.

I think I'm mostly just trying to put my finger on the deeper issue that goes beyond the question of economics and governments. Regarding economics and governments we largely agree, I just can't agree to the deeper case of subjectivism in the issue.

Let me think a bit… I think I can put it this way: subjectivism is OK as long as we are talking about the fulfillment of desires. If it's only about technical knowledge, "techné", about how to fulfill a desire, the individual knows best, and that's why within the framework of desire-pursuing modernity Libertarian-democratic governments are the least evil. No argument regarding this. Modern populist governments almost always try to override liberty because they think they know better how to fulfill our desires, and they are almost always wrong in that. Do we agree in this? Good. Next step then.

Really, where I want to go beyond subjectivism is not how to fulfill our desires but to decide _what should we desire_, and even that that we should have some other goals than the fulfillment of the desires altogether.

This goes beyond the whole scope of modernity, because the core – and false – message of modernity is that the fulfillment of desires is the highest good. So this does NOT apply within the scope of modernity – economics and democratic and tyrannical governments, as they are all concerned with the fulfillment of desires – but outside it. It applies to the traces of our heritage from pre-modernity.

I could imagine an elite to tell us what should we desire and when should we abandon desire altoghether. In fact that's even necessary and nothing we would call a life worth living can survive in the absence of it. But they could be neither democratic nor tyrannical.

The best way to put it is that in the modern sense of the word, they should not govern at all – just lead _by example_.

So I think in this I am talking about something entirely different and outside the scope of government as it is understood in the modern world.

>the core – and false – message of modernity is that the fulfillment of desires is the highest good.

Really? Why is that false? Did God tell you that it was false?

The point I am making is the the "highest good" is largely subjective. Who gets to decide what I "should" want. "Should" implies that we have some agreed framework of morality. I doubt we do, except on some very basic things. This is the great black hole these discussions end up in: what is the purpose or meaning of life? Obviously, people don't all agree on that, and the reason why is simply that there is no objective answer, except perhaps the very honest answer, which is that there is no purpose or meaning to life.

(BTW, the snarky answer that the purpose of life is to propagate our genes is also false: genes have no purpose. Perhaps various random processes have ended up in an energetic minimum causing this result. But that is no more the purpose of genes, than the purpose of water is to flow downhill.)

That seems pretty nihilistic, so let me rephrase my position: there is not purpose or meaning to life aside from whatever you personally choose it to be (or more commonly, what someone else chooses for you.) Take that for what you will.

Whut? Who? Where? Oh… I see… Er… may I risk an assumption? Have you been so often exposed to the monist extreme – i.e. Fundies who thing god gave them an exact recipe about how to live an good life – that the only defense you see against it is the other extreme – relativism? M

ay I ask you to re-read my previous and comment and try to grok pluralism ("there is objective good but we don't know for sure what it is") as a middle way between monism ("I know the objective good fer sure, god told me!") and relativism ("no objective good just subjective preferences") ?

Otherwise. Why, it's almost obvious what is the purpose of human life: happiness, eudaimonia, a meaningful, good life – something we'd feel no regret remembering to at 85 years old. It's almost self-evident. It's hard to define it in words, but we know it when we see it.

Desire in its raw, unreflected-on, uneducated, untransformed, unrefined sense is allegorically equivalent to demanding that the whole world to be covered by leather in order to not hurt our feet. It's a natural thing and hard to get rid of and very few people ever did and it's not realistic to ever expect most people won't be mostly desire-driven – but hardly the best strategy.

The intelligent strategy is rather to put on a shoe – this allegory means this: to try to transform and change ourselves in order to become suitable for the purpose of a good life, much like a knife must be sharpened in order to be suitable for cutting. (Or, change ourselves in order to be capable to change the world, that's the same thing.)

Now, nobody has a fixed recipe that would be perfectly suitable for everybody on how to do this. This is why we need pluralism, the middle way – to experiment, to look for it, to approximate and debate it etc. To find ways. Many ways. No recipe cast in stone. But to look for them, we must. Er, should.

Now I'm realistic and perfectly accept that society cannot be transformed into a utopia and most people will pursue desire in a very raw way, others in a somewhat educated, somewhat transformed way, and only few ever are capable to focus their attention more on self-betterment than on desire.

But as much of it as can happen is a good thing, objectively good. I mean the search itself is good, as I can't tell for sure where to find it.

Again, not talking about governments here. This requires guidance from people better from us, and electing people who are better from us is a laughable idea – how could we even recognize them? Similary, the tyrant is always a "man of the people" so unsuitable for the task. It's outside governments, as they are understood in the modern world. But this must happen – or we sacrifice the whole potential that makes life worth living.

I mean everything ever that work reasonably well, from a good marriage or relationship to a good teacher-student relationship was always based – usually not consciously – on a self-betterment basis and not on a desire-basis i.e. other-betterment basis. Yes, in your life too, probably. It was my greatest shock when I discovered that it always worked this way in my life, anything I ever got anything working worked by changing myself and not demanding that the world be changed. (Or I changed myself to be capable of changing my world. That's the same thing.)

It's not new – just recognizing why and how everything worked in our life so far.

Please read the pomocon article linked above. It's very enlightening, I mean, the second part, the stuff about "education as Eros" and not the religious part, of course.

>Otherwise. Why, it's almost obvious what is the purpose of human life:
> happiness, eudaimonia, a meaningful, good life

This statement is illustrative of my concern with your argument, and also takes us back to the core of this topic. You make the above statement despite the fact that many people don't hold the same view. You offer no evidence, other than your opinion, that it is true. If it is so obvious, why isn't it more prevalent? For example, I think if you took a survey, more than 50% of people asked would say that "seeking your own happiness as your purpose" would be considered selfish. (I would not be amongst them, btw.)

However, this comes back to the point of the subject, and my original point. The market has a powerful truth detection mechanism to get people to declare what their true wants are, rather than their imagined articulated wants are. It is, consequently, a much more powerful tool that democracy for guiding a nation. I know of very few cases when this market has been less able to produce the desires of a society than elites in a smoke filled room have.

The number of people holding a given view says nothing of whether that view is true or not. Truth is independent of human opinion. Just because someone chooses to view that the sum of two plus two equals five does not make it any less false.

And just because the absolute truth is unknowable in its totality by the human brain does not make it any less real.

In the market the question is not *truth* but preference. Truth is for science and philosophy. The purpose of a free market is to produce goods and services in the degree and of the type that is preferred by the people of a nation. So your point is correct, but irrelevant.

There are objective and subjective components to beauty, but things are beautiful only in as much they represent the form of beauty. Anything that is at all truly beautiful is beautiful in the objective sense. Some people perceive beauty where there is none, and fail to perceive it where there is much. This is due to improper formation, human imperfection, and the lack of the ability of the intellect to grasp the form of beauty.

I agree with your assertion that the national endowment of the arts and other such bodies in modern times are terrible, and produce worse results than the market would in our current age. But we are also in an age and place that has little in distinct culture, and little in terms of objective values. I have a problem with the US government paying random kiss-ass artists to wipe their asses in a paint bucket, but I have much less of a problem with King Ferdinand IV of Naples commissioning Joseph Haydn to compose a series of concertos for his wife.

There is little representation of the form of either beauty or truth in modern-day Iran or Soviet Russia, but one could make an argument from pre-revolution Russia. As flawed as many the Czars were, the art, choral tradition, architecture, literature, etc. that was produced in that period is certainly unmatched in the modern or postmodern ages.

To say you know more than millions of other people's weighted decisions is the height or arrogance.

Not necessarily; sometimes (as with the mortgage-backed CDOs that have made headlines over the past 18 months) it's basic hindsight. There's a reason we talk about the "efficient markets hypothesis" and not the "infalliable markets hypothesis."

You are confusing two issues. I am sure AIG is now fully aware of the poor choices made regarding CDOs (and their real failure which was extremely poor internal controls.) What does the fact the hindsight makes for better decisions have to do with making decisions in foresight? (The former being the subject under discussion.)
If you think that the situation with CDOs and the elite response to it is an example of a market failure, I think you are insanely wrong. The problem there was market interference. Let AIG go down the tubes, and let other insurance companies feed on the carcass. That will fix the problem very quickly. Getting government bailouts will make the problem worse. Good grief, do you really think Barney Frank can even spell CDO?

If you think that the situation with CDOs and the elite response to it is an example of a market failure, I think you are insanely wrong. The problem there was market interference.

I'll grant that there was market interference, but it seems to me that its impact was much smaller than free market advocates would like to believe. Whatever effect the Community Reinvestment Act had on lenders' mortgage practices was dwarfed by the pressure from investment banks who wanted more loans to securitize. Likewise, whatever effect the quasi-government entities had on the prices of mortgage-backed securities was dwarfed by the financial industry's having conned itself with faulty risk models.

Of course, CDO valuation wasn't the only market failure leading up to the crash. Others include: hedge fund investors' agreement to terms that gave fund managers perverse incentives with respect to risk taking; State Street's et al. belief that they could be profitable in the long term by following Enron's business model (in a less evil manner); plain old irrational exuberance, as evidenced by 25:1 leverage ratios; etc.

Let AIG go down the tubes, and let other insurance companies feed on the carcass. That will fix the problem very quickly. Getting government bailouts will make the problem worse. Good grief, do you really think Barney Frank can even spell CDO?

I agree on that much. What I take issue with is that we're looking at an enormous market failure, and rather than trying to learn from it you seem to be standing in front of it, waving your arms, saying "Nuh uh, there was some government interference so it doesn't count!!" I think you're the one confusing the issue.

Syskill, I think I did not get my point across very effectively. The government interference I was referring to was after the problems not before. There are many market interferences that was somewhat responsible for the problems we are seeing, however, the worst and most damaging interference is the attempts to fix it. The market has a very effective tool for fixing badly run companies. It is called "death." It also has a very effective tool for minimizing the effects of such a death, it is called "feeding on the carcass." Economists like to call it "creative destruction", but I like my terminology better.

The idea of "too big to fail" is perhaps the most cancerous and dangerous idea invented by the political system in fifty years. It is patently a lie designed to allow the nationalization of large swaths of the American economy, and bury it under the mantle of compassion.

[Not sure whether the new comment plugin is rejecting my comments for blockquote tags, or ESR is rejecting them for flamebait.]

"""To say you know more than millions of other people's weighted decisions is the height or arrogance."""

Not necessarily. Sometimes (as in the case of the mortgage-backed CDOs that have made headlines over the last 18 months) it's basic hindsight. There's a reason we talk about the "efficient markets hypothesis" and not the "infalliable markets hypothesis."

To say you know more than millions of other people's weighted decisions is the height or arrogance.

I do not believe genuine education is something that should be sold away to populism. Vocational training is what the market 'wants', and so that is what undergraduate courses at university do these days. Students flounder and complain if assignments contain novel, unseen material. Classes are getting larger all the time, leading to the necessity of 'batch teaching' that de-emphasises discussion between the lecturer and students. Untalented, unmotivated students are passed because our market-inspired performance indicators reward us for passing more students. Teaching students real computer science and programming has become secondary to getting people through the door to make the university money. Postgraduate level work is slowly going the same way, with genuine intellectual content falling by the way-side to make way for business-oriented projects that are more development than research. I fail to see how anyone could see this as anything but a tremendous shame.

John, do you find it purely coincidental that this has happened lock step with the increasing involvement of central governments in Universities, through funding, and consequential control? Do you also agree that there is some proportionality between the size of a school's endowment (and consequently, financial independence from government) and their dedication to academic excellence?

Are these things independent, or related?

On an entirely unrelated topic, does it make you want to retch in disgust that Universities, supposedly the bastions of free thought, and independent inquiry, are currently the most vicious enforcers of speech codes and thought police?

(BTW, the above applies to American Universities, I don't know much about Universities outside the USA.)

I don't know anything about economics, but I know for sure that markets protect our freedom. I was born in the evil country called Soviet Union were free market and so-called "capitalist greed" were outlawed and in practice that meant the rule of centralized bureaucratic elite with no individual freedom at all.

Isn't the failure of USSR a good enough argument that imposed artificial "freedom" simply doesn't work? We can't make anyone free by force.

I think that Eric is 100% correct. I fail to see how any experienced investor could have put so much weight on securities that they knew were based on very volatile, predatory loans. I don't think investors are rational or stupid. The only reason they kept putting weight on an already crumbling shelf is because they knew someone else was going to keep it propped up, or clean up the mess when it crumbled.

Both things happened, the government kept it propped up for years, now the government is cleaning up the mess. Some people might argue that this was a 'cats away mice will play' scenario, in reality, the cat just let the mice do whatever the hell they wanted while being a willing participant.

I think this goes to show, the idea of completely free markets is as flawed as it is needed. Given enough participants, someone is going to spit in the soup, usually the cook.

Here’s another: an unknown but probably large percentage of those non-performing mortgages were issued by banks under political pressure to make enough loans to poor people (especially poor people who weren’t white) through regulations like the Community Reinvestment Act.

It seems unlikely to me that this had much impact, next to the enormous (and misguided) market pressure that was on banks to make risky loans to be securitized and sold.

>the more irrational they are, the more quickly they pop.
This would make sense. Perhaps this is a trivial point, but the more something is irrationally overvalued, the greater profit opportunity there is to look for the true value.

I hope this isn't too far OT, but do you assert that prices aren't sticky downward? Or do you believe that most stickiness is due to things like the minimum wage?

Um. I agree with the general direction, but not with the wording. This is typically Neoclassical stuff: trying to import the way of thinking of natural sciences into social sciences. But people aren't stones or atoms, they don't obey to general laws of nature, they think and act independently. If markets were efficient at any time, there would be no need for entrepreneurs whose arbitrage comes exactly from inefficiency and solves that particular inefficiency. If markets were efficient, all entrepreneurs could go on an indefinite holiday because the rate of profit would be equal to the basic rate of interest. No one would win more or lose anything.

So, yeah, on one hand, I agree, but this Neoclassical wording leaves you open to criticism that you assign some mystical rationality to some sort of an impersonal natural law. This when you get the "Market Tooth Fairy" kind of criticisms. Basically it just sounds too much like "reification", and too much like faith.

So it's better to put it this way: the market isn't a force, but the sum of demand and supply, and in itself doesn't solve _anything_.

It's basically a playground for entrepreneurs, not natural forces but thinking people, who seek arbitrage.

Arbitrage they can only find in market inefficiencies in the unregulated case and by taking profit from it, they are solving or at least lessening the inefficiency. Thus entrepreneurs are always in pursuit of solving inefficiencies, though never managing to solve them all. (In a regulated market: entrepreneurs often don't give a fuck about inefficiencies but pursue regulatory or jurisdictional arbitrage instead.)

The only real purpose of the market is to set up entrepreneurs to go on and profit from inefficiencies, which by that they solve.

And those inefficiencies come largely from people being irrational, but it's not the sum of irrationality is what solves i.e. can't say 10000 irrational people are smarter than 1 irrational person. No way.

It is rather the rationality of the entrepreneur that solves it.

I think such a bit "heroic" view is more proper than the "gas molecules" view. (Just dont' overdo it, Schumpeter's heroism is OK, Rand's isn't I think.)

They are. 1 irrational person can hang himself and die, 10000 irrational persons can't do that. They will follow rational laws of nature whether they want it or not — they at least would have sex and therefore multiply instead of dieing.

It is not at all clear that a mass of people should aggregate to rational behavior and/or market efficiency, even in purely economic domains. Alan Kirman has written a witty but sharp critique of this idea, called "Whom or what does the representative agent represent?" in the Journal of Economic Perspectives (1992). Some researchers instead use agent-based models to study crowd behavior etc. For example in financial markets, it is relatively easy to explain mispricings through some form of trend-followers or social imitators. Didier Sornette has written a fantastic book that summarizes research in this particular area in a very readable way for scientifically minded laypeople, called "Why Stock Markets Crash" (Princeton UP, 2003). There is also a shorter survey in Physics Reports 378 (2003), called "Critical market crashes".

OK – this is an extreme case. Economics isn't really about extreme cases.

But. 10K farmers who have a surplus of wheat but are very short on proteins, IF they are irrational, they will just sit around and complain. It takes a rational trader to approach them and offer meat in exchange for some of the wheat.

This again is a a bit of an extreme, theoretical case.

But in the real world you can observe how often the unemployed sit around and complain that there are no jobs and it doesn't occur to them that jobs can be made… it takes a different sort of person to make jobs.

I think in a country of 100M people if a strange, selective pandemic would kill off those top 40,000 people who have what it takes to be a good entrepreneur – much more than just intelligence: drive, determination, ambition, greed, lots of psychological sense, risk-taking, common sense, courage and a thousand other things – the economy would grind to a friggin' HALT until, supposedly, some foreigners help restarting it or a new generation grows up.

Something similar happens if those top folks are not killed but they find it more profitable to get money out of the government rather than to pursue market inefficiencies.

Then there is no one left with the ability to pursue the inefficiencies and the market just doesn't work, because the market doesn't solve problems, it just enables talented entrepreneurs to solve problems – if they want to.

If they are _forced_ to, in a sense, that no other avenue to wealth is left open i.e. no corruption, no nepotism, no crime, no siphoning of money out of the state.

This is my general theory why the market in my homeland, Hungary, just doesn't work: entrepreneurs find it easier to make profit from the government. I suppose Russia must be similar?…

1) What percentage of banks and mortgage writing institutions are under the provisions of the CRA.
2) How did that percentage change from 1997 to 2007?
3) What percentage of mortgages that were folded into collateralized shit sandwiches were CRA eligible mortgages?
4) What slice of the mortgage pie was made up of CRA eligible mortgages? How did that change from 1997 to 2007?
5) What's the historical default percentage on CRA mortgages? How has this changed?
6) Of the percentage of mortgages in default, is the percentage of them that are CRA mandated larger than or smaller than the comparative percentage of CRA mandated mortgages as a function of the whole pie?

I happen to know a chunk of these numbers. I know that the narrative of "The CRA caused all this!" doesn't actually match the numbers on this set that I do know.

However, I think it'll be illustrative to see someone else put together answers to those questions, particularly someone who wants to 'prove' the "CRA is at fault" narrative rather than repeat a talking point that happens to fit their "See, we told you that fucking with the markets would have bad consequences" prejudices.

The CRA isn't solely at fault, but it created the environment that would ultimately lead to the abuses that caused the collapse.

CRA was passed to solve a specific and limited problem. However, there's no political hay to be made in solving problems, so the problem got redefined. Eventually, banks concluded that it was easier to make loans to anyone who could fog a mirror than risk the ire of FDIC. The creation of Fannie and Freddie, and their implied federal backing is a major part of this.

Once moral hazard was removed, the piranhas struck. When bad policy creates an opportunity for the shall we say, less than ethical, you will get a bubble. Realtors, realizing that banks could not say no, drove up the prices of housing. Mortgage brokers, realizing that FNMA would buy anything, began writing riskier and riskier loans. Congress covered up the shenanigans because it was good for votes. The home builders went on a production spree.

And then Econ 101 hit. Oversupply meets a softening of demand. Now that people aren't turning houses over for a profit, and can't refi them at a higher value, they end up under water. They couldn't afford a traditional mortgage to begin with, and when they couldn't refi out from under the adjustment, they walked away. Banks are selling off foreclosed properties for a fraction of the mortgage value just to get the property off their books. And now the home builders are stuck with properties they cannot sell, and they owe all kinds of money on those.

And that's how the CRA is to blame. The original minorities who were meant to be protected by it weren't the problem. It is a mistake for anyone to assume that criticism of the CRA is racist for that one reason alone.

So what do you think about sticky downward prices? Would you say that they are not sticky, that they are mostly sticky because of things like the minimum wage, or that they would be sticky even without government intervention?

> But the very fact that people debate, say, classical music, classical culture over pop culture or po-mo means one or the other must be objectively better.

I think it just means people believe that one or the other must be objectively better. People make these sorts of choices based on how things make them feel (preference satisfaction). So any idea of "good" is inextricably linked to the particularities of who we are. People are often egocentric and erroneously believe that others share the same preferences as themselves.

I think we say that art is good because it gives us the emotions we want. On what other basis could it be good? I doubt there would even be an idea of good without humans or other sentient beings. Our emotional responses clearly differ, so our subjective goods must differ as well.

> I doubt there would even be an idea of good without humans or other sentient beings.

That's just as absurd as saying that numbers wouldn't exist if there weren't people to add them. That we perceive such things is immaterial; they are, independent of us. Just because the natural law is written on the hearts of man does not mean we are the source of said law.

I wasn't trying to make an unwitnessed-tree-falls-in-the-forest argument. I believe that morality, to exist, requires the existence of people with the sensation of freedom. Without freedom, there are no choices, and without choices, there can be no obligation.

Not all people believe that art is 100% subjective. There is a subjective component, as a matter of personal taste. But some believe in objective beauty, and things are beautiful only in that they resemble an image of the form of beauty.

If you are referring to the ideal gas law, please understand that it has an number of important limitations.
It is first, a statistical mechanical treatment of identical point particles (no internal structure).
It assumes these particles do not interact chemically, and furthers assumes that all physical
interaction is limited to purely elastic collisions.

No system or machinery or economic doctrine or theory stands on its own feet: it is invariably built on a metaphysical foundation, upon man's basic outlook on life, its meaning and its purpose.

The modern west seems to have a religion of economics, the idol worship of material possessions, of consumption and the so-called standard of living, and the fateful propensity that rejoices in the fact that 'what were luxuries to our parents have become necessities for us.

Note that Fannie Mae and Freddie Mac also bought securitized packages and did so with the implicit guarantee that the federal govt would stand behind them.

There's another factor – banks were given favorable treatment for the fannie and freddie shares that they owned. This caused them to have more exposure to fannie and freddie than they would have otherwise. However, when fannie and freddie went down, it meant that banks as a class took a hit.

Like much otherwise clear-sighted U.S. commentary, this essay suffers from being underpinned by the 'infallible market' hypothesis endemic to that country. This hypothesis possesses an irrefutability rivaled only by religious convictions.

The market is held to unerringly seek efficiency, where efficiency is defined as whatever the market produces. If the market fails, it is because of interference, where interference is defined as whatever causes the market to fail.

In some of the comments about this essay we see the suggestion that markets may produce undesirable results being described as "patronising" and the "height of arrogance", on the grounds that what is desirable is simply the sum of all desires, and that such is expressed by the market.

Aside from these recursive arguments, there are many other problems with this view, not the least of which is that it is easily demonstrable that systems of freely competing individuals do not produce the best results: Braess's paradox, the Downs-Thomson paradox, the non-optimal nature of Nash equilibria are all examples; as is trying to get out of a burning building: in the free market, everyone burns to death as we express our desire to get to the exit by elbowing our competitors in the face, otherwise, a "patronising" fire marshal conducts an orderly evacuation, giving everyone a better chance of survival.

A practical example: free-market reasoning would predict that unemployment would be lowest in an unregulated labour market; but this is also false: other things being equal, unemployment is lowest in countries with a high level of unionisation combined with coordinated collective bargaining with employer organisations.

And by what definition of "free" is a desperately poor person free to work or not for an exploitative employer?

In my country (Australia) we have seen attempts to marketize everything, with results ranging from good (in the case of telecommunications), through bad (other public utilities) to disastrous (jails). Despite the fact that nowadays the vast majority of people would like to buy back the worst cases, this doesn't happen because free-market ideologues in government tell us it's better this way. A little patronising, I think. And not a little ironic.

Outside the U.S., not all threads of libertarianism are so market-centred. Indeed, the capitalist market depends on notions of private property enforced by social norms otherwise known as laws. This fact is a chink in the armour of fundamentalist libertarians.

The market is just one aspect of human society, interacting with (but not predominant over) science, politics, culture, family, language, religion, sport, philosophy, etc., and as such involves balancing individual liberty with overall benefits. The road system is similar: we may efficiently discover where roads are needed by letting people go where they will, but if the resulting maze is suboptimal, we may rationally intervene to improve it.

In both cases, they exist to serve human society, and not the other way around. The moment the market is producing detrimental results for humans, we should fix it. To suggest otherwise is mere ideology.

In both cases, they exist to serve human society, and not the other way around. The moment the market is producing detrimental results for humans, we should fix it. To suggest otherwise is mere ideology.

Of course… but those proposing the fix should have the burden of proof that their 'fix' doesn't introduce more problems than it solves. It's astonishing to me how people who can converse at length about market inefficiencies and the fragility of ecosystems go on to hand-wave their way past the problems of regulatory capture and perverse conquences of regulation based on nothing but good intentions.

>Like much otherwise clear-sighted U.S. commentary, this essay suffers from being underpinned by the \\'infallible market\\' hypothesis endemic to that country. This hypothesis possesses an irrefutability rivaled only by religious convictions. The market is held to unerringly seek efficiency, where efficiency is defined as whatever the market produces.

Nice going, that\\'s two completely wrong assumptions in two sentences. They screw up the rest of your diatribe.

No economist, U.S. or not, believe markets are infallible, just less fallible than any other form of resource allocation. This is actually provable under very general assumptions; see D. D. Friedman\\'s <cite>Price Theory</cite>. Furthermore, \\"efficiency\\" is not defined circularly, op. cit.

OK, I've skimmed that reference and will read it properly later – I'll try to keep an open mind as I read another U.S. libertarian economist describe the workings of the free market! (by that I mean no criticism of libertarian ideals nor of the U.S., incidentally, I am merely referring to the distinctively American conflation of libertarian politics with free-market economics.)

I can see already that Friedman at least has some non-circular (but far from clear-cut) definitions of efficiency. I could also have been mistaken in my characterisation of your position on market fallibility, but as I didn't detect any hint of 'hey, the market failed this time' in your essay, in light of current economic events, I would like to ask: what in your view would actually constitute a market failure?

But if you like, exchange "infallible' for "best" and "recursive" for "narrowly defined" – contrary to your assertion that they "screw up the rest of [my] diatribe" (hey, I thought I was being quite polite!), I don't actually need either of those assumptions to make an argument that the market cannot be depended upon to produce the most beneficial results for humans, and in fact frequently does the opposite; my post stands just fine without the first two or three paragraphs.

This is not a conflation at all, free markets are a subcategory of libertarianism. Libertarianism is the belief that people should be left the hell alone. Free markets are a spontaneous organization of people making mutual agreements between themselves on the matter of trade of goods and services.

Whenever some external entity decides that the mutual agreement between you and I is "inefficient", "against the public good", or some other justification, and uses some mechanism of force to prevent it, then you have the precise antithesis of libertarianism.

Your argument is no different than asking why you darned Americans are always conflating gun rights and libertarianism, or free speech and libertarianism. They are "conflated" because they are subcategories of libertarianism, not random beliefs glued together unnaturally.

Of course, you can argue this out by redefining libertarianism to mean something else entirely. Go nuts. Redefining words is a common tactic on Internet debate.

If you don't agree that markets are best when free, make that case. If you don't like Momma packing heat, say on. If you want to hush Rush, bring out your arguments. You have already made some point worth addressing. However, don't pretend such arguments are libertarian in nature, libertarianism implies and requires free markets, just as it does free speech and gun rights.

>Your argument is no different than asking why you darned Americans are always conflating gun rights and libertarianism, or free speech and libertarianism. They are \\"conflated\\" because they are subcategories of libertarianism, not random beliefs glued together unnaturally.

Correct. The failure of non-Americans to understand this is their problem, not ours.

A continent full of people on average more civilized, more educated, more sparing of energy, happier, healthier, and longer-lived than Americans doesn't seem to have convinced the willfully, gleefully barbaric Rush bloc. What makes you think any rhetorical argument will do the trick?

Television was designed to bring works of culture like Shakespeare to the masses. Then the market took over and we wound up with Jackass. The fairness doctrine was designed to prevent the same thing from happening to the average American's daily diet of political opinion and analysis. The airwaves are a public good, after all.

You are of course correct to say that any freedoms are subcategories of libertarianism, by definition. And of course external force is antithetical to liberty. But I think we all recognise that freedom is not so simple.

If someone beats me up and takes all my stuff, that's an expression of their freedom; but I don't think anyone who doesn't live in a bunker full of canned beans would regard that as a legitimate one. We temper our freedoms with ideas of fairness, decent behaviour, etc..This is the fundamental tension in any society, and there, of course, is where it gets complicated.

Is it decent or fair to pay someone $2 an hour when you could afford to pay ten, just because they have no other option? Free-marketeers say yes. Is it fair to form a union to force the employer to pay $10? Free-marketeers say no, but why not? Isn't the union part of the market? Didn't they form voluntarily to pursue their legitimate interests?

A contradictory element of free-market libertarianism which I mentioned in passing earlier is that it seems to still rely on the state to enforce private property and the financial system, while relieving it of all other social responsibilities. Isn't that kind of selective? If you can use state force to get what you want, why can't I?

And the gun thing, oh, the gun thing…yes, it's a freedom, but why so much emphasis on that one? Why not the freedom to walk around with a wild cheetah on a leash? Or the freedom to take a backpack full of gelignite onto a plane? Are you seriously considering an armed revolution anytime soon? Because if not, I'd rather live in a world where I'm free to disagree with you while you're drunk.

Unless you're Grizzly Adams, human beings live in societies, and consequently all liberty exists in the context of a society. There will always be a tension between the community and the individual, and through that tension, compromises are made that maximise freedom. This may take the form of market regulation or the banning of guns or suing for libel if that community freely so decides. It is not for anyone to prescribe otherwise – that's the difference between true liberty and ideology.

To borrow an analogy employed by Tolstoy in War and Peace, an arm floating in space is useless – it must be attached by a shoulder to a body in order to be able move – but paradoxically, the presence of the shoulder and the body necessarily restricts the range of its movement.

So no, I don't accept that free markets or gun rights are implied by libertarian ideas, except in their most naively individualist form.

You may already know that the term "libertarian" was first used in 1857 by French anarcho-communist Joseph Déjacque, and he most certainly did not include in its ambit the free market in the sense you are using it! So I think there has already been quite a lot of "redefining" of the term before I came along.

>If someone beats me up and takes all my stuff, that's an expression of their freedom

John, freedom in the context of libertarianism has a pretty specific meaning. It does not mean "Free to do whatever the heck you want", it means "free from being forced to do what someone else wants." I agree that there are some areas where "force" can be a little difficult to define, but for the most part the difference between force and non-force is pretty bifurcated.

>We temper our freedoms with ideas of fairness, decent behaviour

Yes we should, but not at the point of a gun, or under thread of jail time. That is to say, society has other mechanisms to make that happen outside of the realm of government and force. The idea that we should enforce fairness by threat of violence and physical punishment seems a bizarre and ironic contradiction to me.

> Is it decent or fair to pay someone $2 an hour when you could
> afford to pay ten,

Is it decent for someone to demand more that $2 an hour for work that is only worth $2 an hour? Or would you prefer that person be unemployed?

> Is it fair to form a union to force the employer to pay $10? Free-marketeers
> say no, but why not? Isn't the union part of the market? Didn't they form
> voluntarily to pursue their legitimate interests?

I don't agree. I am a free marketer and I am not opposed to unions at all. I think if people voluntarily enter into a compact for collective bargaining then that is a legitimate and perhaps smart thing to do. I think if workers compact together as a union to offer quality guarantees that is also a good thing to do. ("Only use union plumbers, they are bonded and certified to do a good job".)

Where I have a problem with unions is when they start to use force to cram unionization down other people's throats. For example, closed shops, obligations to pay union dues, violence against "scabs", damage to employer's property, trying to pass laws to make the use of non-union labor illegal, and on and on. (And to respond to your obvious follow up question — yes I object when big business does the same.)

>And the gun thing, oh, the gun thing…yes, it's a freedom, but why so much emphasis on that one?

Because the right to defend yourself and family against the violence of others, and the right to have the means to do so, is the very essence of freedom.

As always, I have written too much, suffice it to say there are well known answers to your other questions, that I won't pursue here any further.

>The idea that we should enforce fairness by threat of violence and physical punishment >seems a bizarre and ironic contradiction to me.

And to me. As a fellow libertarian (but I suspect of a different stripe!) I am suggesting that people may decide on the form of any aspect of their polity, as they choose, as a community, in the interests of maximising freedom in that community. How that is achieved is for that community to decide, and is a problem no different in character from trying to ensure decent behaviour in a free market.

My key point is that no particular economic strategy is necessarily chosen by all communities, hence my questioning of the conflation of free markets with political freedom – in other words, my objections to the free market do not make me an advocate of state violence!

The problem, John, is that you're comparing real markets against your imagined intervention in them. Unfortunately, the real world is not so accommodating. Good government is a commons. If I cause my government to create good public policy, I bear all the cost and receive only a tiny fraction of the benefit.

But all of this misses the point. The problem, simply enough, is that it is NOT MORAL to use violence (or threats of violence) to change the behavior of peaceful people. This is true no matter what they are doing: whether they are talking to each other, writing to each other, meeting with each other, worshipping with each other, or, yes, trading with each other.

Even if you COULD successfully direct the behavior of other people who have their own plans, IT IS NOT MORAL TO DO SO.

You assume I am "comparing real markets against [my] imagined intervention in them". Not so: I am comparing real human communities: those with free-market economies against those with managed economies.

There are pros and cons of course, but there are stark contrasts, the most salient of which are the _morally_ repugnant inequities and human tragedies arising from unmoderated capitalism.

A free market may work differently in a world devoid of entrenched wrongs and populated by fair-minded, honest people with equal chances of success. Unfortunately, we don't live there yet.

A market is a property of a community of humans, which has the right to do with it as it sees fit, including regulating it. It is drawing a long bow to call this inherently immoral.

You are perfectly correct that it is wrong to infringe on the freedom of others – unless by excercising their freedom they are doing a greater wrong.

As I said in a separate post, I think you make some arguments that deserve answering.

I think the first point to make is this. There are two independent threads of argument for free market, one is utilitarian (free markets produce the best results), one is ethical (it is wrong to interfere with the voluntary exchange between two individuals.) I think both are very strong arguments. In this comment I will comment only on utilitarian arguments, but I think the ethical argument is far more important.

Your first point is that sometimes "the market" doesn't come up with the optimal solution. You make this argument with reference to the fact that game theory indicates that individuals making the best individual choices, relative to each other, does not necessarily lead to the optimal solution over all (which is a ham fisted statement of Nash's theory, and Braess and Downs Thomson which are both essentially special cases of Nash.)

Of course the first reaction would be, so what? Economics is the study of choices between real alternatives. To say that government management of an industry is better than market "management" does not only require that the market be proven sub-optimal, but that government's can manage that industry closer to the optimum. Consider this: when the government manages an industry, it is managed to be optimum for the benefit of the political class performing the management (unless you can demonstrate that politicians, unlike most everyone else, are in it for the benefit of mankind.) It is far from obvious that that would lead to a better outcome.

Consider in particular Downs Thomson. Here it is in summary: "If you increase road capacity, you incentivize people to get off public transport, and use the road. It is possible that the increased number of people on the road would overwhelm the benefits of the new road, and cause increased road congestion, not decreased."

This is a great argument to make in an ivory tower. However, it fails to recognize that in a market the goal is not to build more roads, it is to satisfy more customers (and consequently, make more money.) So, people who have a very strong incentive to make their capital investment in roads profitable, manage their business to take into account these effects. (Or they go out of business, and a capitalist raider feeds on their carcass, and does it right the second time.)

Of course, you will say, it has been demonstrated in practice. But, it hasn't. Roads aren't owned by private companies. Rail systems aren't owned by private companies. So it has been demonstrated in a system where governments are in control without the normal competitive and profit motives that optimize in the market. If anything, that is a demonstration of the ineffectiveness of governments, not their effectiveness.

You have other points worth addressing, but I will stop at this point, since this is too long, and more will not lead to more profitable debate. However, in summary, consider this: no-one familiar with economics would suggest that the market produces the optimum system in a theoretical sense. The goal is not to produce the theoretical optimum, it is to produce the practical maximum. There are good reasons both from considering the incentive network involved and from the practical examination of history, to suggest that free markets are far closer to producing that than managed, or semi managed economies.

While you are correct, and I agree with you, efficiency doesn't matter. If it were efficient to kill your mother, could we kill your mother? Of course not. Morality must come before efficiency, and it is not moral to use violence against peaceful people. Period. End of sentence. End of paragraph. End of posting. Nothing more needs to be said. I've made my point. I'm done here. EOF. +++ATH&@&$7232@%&*652#2752

I can't fault your analysis here, but as for a couple of your assertions:

– You say it's far from clear that government management of an industry would be better than private management (I'll put aside your assumption that governments are always corrupt, which is only sometimes true, and is irrelevant because the same applies private organisations). That is quite true: the results of changing from public to private here in Australia have been mixed, as I mentioned in another post, depending on the particular nature of the industry. I'd call that evidence in favor of a mixed economy.

There's definitely a "market magic" that is too complex to simulate with management – and vice versa.

– On Downs-Thompson:

>in a market the goal is not to build more roads, it is to satisfy more customers (and consequently, make more money.)

I would suggest the statement in parenthesis is more significant than how the customers feel. In theory the two should be strongly linked, but in this country, some roads and most urban rail systems _are_ in fact owned by private companies (they were sold off and tendered out during the Thatcherite excesses of the eighties and early nineties), and the results have been very poor – the cost to the consumer has gone up, the quality of service has gone down; meanwhile the companies themselves prosper, especially the one that built a number of textbook examples of Downs-Thomson high-speed urban toll-road links.

But with due respect, in the end I don't care what the goal is "in a market", my goal for the community I live in is (in this example) a good transport system.

>no-one familiar with economics would suggest that the market produces the optimum system in a theoretical sense. The goal is not to produce the theoretical optimum, it is to produce the practical maximum.

Maximum for whom? Unmanaged, the market regularly produces disasters and gross inequities which render farcical any claims that its participants are all equally free to make choices.

Just briefly, I never said governments are always corrupt. I said they had different incentives. That is an entirely different thing. Large corporations are also sometimes corrupt, but, absent the twisting caused by government interference (and a few other things) they are incentivized to make their customers happy.

Why is that different from governments? Because if you think a Big Mac doesn't taste so good, you can always get a Whopper. If you think Gordon Brown is going to take half your marginal income, or if you morally object to sending troops to Iraq, it isn't so easy to change government. (This is true for several reasons, two of which are the cartelization of national governments to eliminate choices in the name of "tax fairness", and the hugely high transaction costs involved.)

Unmanaged, the market regularly produces disasters and gross inequities which render farcical any claims that its participants are all equally free to make choices.
John, the only unmanaged markets are the ones where politicians have tied the hands of market participants. For example, pollution of public property is a problem because only governments are allowed to sue polluters. If citizens were allowed to sue polluters, there would be no such thing as pollution.

Free markets ARE managed markets; managed by the participants.

Everyone has a choice in life, even if all the choices suck. In fact, that's the practical definition of poverty: it's not about money, it's about the quality of your choices (and also which choices you make in life).

>I didn\\'t detect any hint of \\'hey, the market failed this time\\' in your essay, in light of current economic events, I would like to ask: what in your view would actually constitute a market failure?

Of course the market failed this time! My intent wasn\\'t to deny that, only to argue that in this case (as usual) political fixes guarantee political failures worse in both magnitude and persistence than the market failure they are aimed at correcting.

This quote was posted a week ago in the global warming thread, but since it's economics, and I would like a response, since I may be mistaken, I thought I'd post my question here.
"The problem with inflation (and curbing it) is that at low levels, the signals for inflation are easily mistaken for the signals of real GDP growth."

Shouldn't real GDP growth, without inflation of the money suppy, result in gradual deflation, not inflation?

Yes, you are correct, and that is the pretext for constantly printing more money. (Theoretically, the central banks including the Federal Reserve are politically independent institutions who are tasked specifically with managing the national money supply in such a way to keep inflation low, supposedly by printing approximately the right amount of money.)

Unfortunately, there is no easy way to measure "real GDP growth", partly because GDP is more a vague concept than a crisply defined entity. And that is why the statement was made that it is hard to separate the two. (BTW, there are other factors that affecting inflation, including the license to print money granted to banks called "Fractional reserve banking.")

Deflation is considered bad, because it causes a delay in spending (if you can buy it cheaper tomorrow, why buy it today?) However, I have never found that argument all that compelling. Deflation has its down sides, but it also has its upsides. (For example, it encourages saving.) The drastic deflationary processes in desktop PCs over the past 30 years can hardly be considered bad.

Well, you're the one with a lousy sense of morality. As soon as you start to say that people can do a "greater wrong", you're starting down the slippery slope.

I doubt your ability to recognize a marketplace free of government interference.

Yes, there are unpleasant results generated by capitalism. Every system has its flaws. Capitalism has the pleasant effect of creating enough extra wealth that moral people can correct the harm.

Sorry, no, it is immoral to use violence to change the behavior of people who are being peaceful. EVERY TIME. WITHOUT FAIL. A society that values peace (and everybody gives lip service to that, even the people who want the peace of the grave for others) will not create violence where there is none.

>But all of this misses the point. The problem, simply enough, is that it is NOT MORAL to use violence (or threats of violence) to change the behavior of peaceful people. This is true no matter what they are doing: whether they are talking to each other, writing to each other, meeting with each other, worshipping with each other, or, yes, trading with each other.

So many libertarians believe this, and it's so shaky it's almost laughable. (That's why they have to insert the word peaceful to make it remotely plausible.) Libertarians approve of using force in circumstances where the use of such force results in halting another's use of force. There is no fundamental difference between that and force which, say, provides a higher average utility by redistributing wealth, or any other use of force which achieves desirable consequences. If you want to argue that the prevention of violence is the only good consequence that we can derive from the use of force, go ahead, but the a priori argument for libertarianism is bizarre.

Thomas,
Consider two situations:
1. A thug pulls a knife of me and demands my money: I kick him in the nuts and run away as fast as I can.
2. A thug from the government threatens to put me in jail if I don’t give him a substantial amount of my money for this poor person. Even though I have busted my butt to make the money, and she has sat home eating Oreos and watching Oprah, it is unfair that I have more than her.

If you can’t see the moral difference between these two, then I will bid you well, and will try to avoid you at parties.

As we seem to have lost the threading in this forum, I’ll quote what I’m responding to:

esr, quoting JessicaBoxer:

>>Your argument is no different than asking why you darned Americans are always conflating gun rights and >>libertarianism, or free speech and libertarianism. They are \\”conflated\\” because they are subcategories >>of libertarianism, not random beliefs glued together unnaturally.
>
>Correct. The failure of non-Americans to understand this is their problem, not ours.

Even if only 5% of the world’s population can think straight, it’s unlikely that they all live in one country.

There are are many variants of libertarianism in the world, some are socialist, some are pacifist, some are proprietarian, and so on. Each consists of different but non-random beliefs derived from the goal of freedom. Don’t assume your own is definitive.

Never initiate force against another. This should be the underlying principle of your life. But should someone do violence to you, retaliate without hesitation, without remorse, without quarter, until you are sure he will never wish to harm — or never be capable of harming — you or yours again.
– – from The Second Book of KYFHO (Revised Eastern Sect Edition); F Paul Wilson, M.D.

@JessicaBoxer: why the assumption that the poor person has sat home eating Oreos and watching Oprah? Is the proportion of poor people who sit on their butts so great? Is that the only destination of your tax money? It’s very easy to dismiss taxes, charity and social assistance this way, but…

I could also add ‘why do you assume that ‘you’ (the taxee, actually, yes) have worked your ass off to make the money?’

It’s also interesting the qualification of the tax collectors as thugs. You can always move, vote with your feet. Good luck finding a country / state / county without taxation, though, or one where taxes are just the way you like them.

Finally, I understand the difference points 1 and 2 make to you, but I cannot see the point you are trying to make. I see how (1) is different from (2), but you present them both in a negative light, so…

Jessica and Russ,
If I could be reasonably certain that a use of force would yield net benefits, I would assent to it. My point is that you can’t just get up on high and scream Thou Shalt Be Damned, you have to look at the consequences that result from a given use of force. All of us here, even libertarians, agree that stopping another’s force is a justified use of force. Why are there no other justified uses of force? The only good a priori argument you can make for non-agression is for complete pacifism, and only if you are willing to stomach some pretty dire consequences. The American involvement in resulted in lots of non-consenting, innocent people dying as ‘collateral damage.’ We killed some people to save others. It’s even impossible to compensate for this damage, for how can you compensate someone who, thanks to you, no longer exists? So, in at least one case, the non-aggression principle impedes us in a significant way.

> I could also add â€˜why do you assume that â€˜youâ€™ (the taxee, actually, yes) have worked your ass off to make the money?â€™
Exactly. Do you deserve your genetics or environment?

>If I could be reasonably certain that a use of force would yield net benefits, I would assent to it.

Thomas, currently you have a pair of kidneys, a liver, lungs, a heart and two corneas. If I killed you and took those from you, half a dozen other people could receive transplants and live. Do you consent to that use of force, since it is evidently a net benefit to society as a whole?

>Do you consent to that use of force, since it is evidently a net benefit to society as a whole?

I would say that a sense of safety is important to us and undermining that negates the net benefit of such an act. Cases like these are why we do have a certain level of negative freedom, it’s just not absolute religious gospel as some would have you believe.

> The American involvement in resulted in lots of non-consenting, innocent people dying as â€˜collateral damage.â€™
That should read
The American involvement in <insert war against genocidal dictator here> resulted in lots of non-consenting, innocent people dying as â€˜collateral damage.â€™

>I would say that a sense of safety is important to us and undermining that negates the net benefit of such an act.

My sense of safety is destroyed when government can rob me for political purposes, then jail or kill me because I refuse consent to their robbery.

But that objection misses the greater point. I would not assist in rendering you down for organs to transplant because I do not want to live in the kind of world where humans are treated as walking flesh-bins to be carved up for the benefit of others. This is exactly – exactly – the reason that I consider taxation to be theft.

>I would say that a sense of safety is important to us and
> undermining that negates the net benefit of such an act.

I don’t know you, but I suspect you are not being entirely honest here. You claim that the reason that it is wrong to harvest your organs without your consent is because it would undermine people’s sense of safety. I suspect that the truth is your are as horrified by the idea as I am, or decent person would be. Your disgust flows not from of its effects, but because it is intrinsically morally horrific. Unless you are a moral vacuum, I am sure you recognize that taking what is yours like this is intrinsically repugnant.

Perhaps asking your life is too much. But you are rich after all. You have TWO kidneys, you greedy organ hoarder. I’ll settle for just one kidney. Step on the gurney please.

Well if you’re going to take the intuitionist route, you can’t use that to prove that taxes are theft because, frankly, taxes aren’t that intuitively morally repugnant to me, even if they are enforced by the infamous Men With Guns. Taxation may be the succor of inefficient bureaucracies, but it’s not bad enough for me to be up in arms about it, and I generally just pay up.

Jessica, in general your argument looks like this:
1. Here are a bunch of situations where taking what would otherwise be one’s own is intuitively morally wrong.
2. Therefore, all situations involving taking what would otherwise be one’s own are intuitively morally wrong.

>My sense of safety is destroyed when government can rob me for political purposes, then jail or kill me because I refuse consent to their robbery.

>But that objection misses the greater point. I would not assist in rendering you down for organs to transplant because I do not want to live in the kind of world where humans are treated as walking flesh-bins to be carved up for the benefit of others. This is exactly – exactly – the reason that I consider taxation to be theft.

If you didn’t pay, for example, your rent, that would be “initiation of force” on your part, and your landlord would be justified to use force to recover whatever money was owed.

How is it different if you initiate force against society in general by failing to pay your taxes?

That’s not the best example, pete, because you signed a rental agreement binding you to pay your rent. I tend to agree with libertarians that social contract theory is somewhat weak, which is the response they would give to your question.

> Jessica, in general your argument looks like this:
> 1. Here are a bunch of situations where taking what would otherwise be oneâ€™s own is intuitively morally wrong.
> 2. Therefore, all situations involving taking what would otherwise be oneâ€™s own are intuitively morally wrong.

Thomas, as you very well know the subject under discussion was your assertion that anything that produced net benefits should be considered legitimate. You are arguing that utility is the key measure of morality, that is to say, your argument is essentially, the ends justifies the means. I don’t agree.

> If you didnâ€™t pay, for example, your rent, that would be â€œinitiation of forceâ€ on your part,
> and your landlord would be justified to use force to recover whatever money was owed.
> How is it different if you initiate force against society in general by failing to pay your taxes?

You really can’t see the difference? Let me explain.
The house belongs to the landlord, he owns it and has a right to control it and recover money you promised to pay him.
The government does not own your money, or the labor of your hands. They therefore have no right to it.

The landlord has [the right to/no right to] rent payments because they have [rights/no rights] wrt your place of residence.
The government has [the right to/no right to] tax payments because it has [rights/no rights] wrt your state/country of residence.

>Thatâ€™s not the best example, pete, because you signed a rental agreement binding you to pay your rent. I tend to agree with libertarians that social contract theory is somewhat weak, which is the response they would give to your question.

Consider a squatter then? Or the usual eating a meal at a restaurant and paying afterwards example? An implicit contract is sufficient that breaking it is “initiation of force”.

Taxes are essentially voluntary in the same way that rent or paying for a meal is; I never have to pay taxes unless I “choose” to earn money, or make a purchase, or draw a goverment benefit.

Libertarians might have a better argument against a poll tax; although there is the counter argument that if every piece of land was privately owned you would have to “choose” to stand somewhere, and so you could be forced to voluntarily choose to pay some sort of “standing fee”.

Of course not. The point is that you can’t argue that failing to pay taxes is initiation of force. because the government does not own me or my labor. Nor can it obligate me by giving me “services” I do not want. I cannot walk up to you, say “I’m guarding you from criminals, now pay me”. That’s called a protection racket, and it’s indistinguishable from your account of government.

Tom says If I could be reasonably certain that a use of force would yield net benefits, I would assent to it. Well, like I said before, you’re a fucking moron, but besides that, you’re stupid, too. First, you can’t be reasonably certain because the future is unknowable. All of these moronic “If a safe was falling on a little girl, and you let it fall, she would die, but in order to save her, you have to sacrifice the lives of several willing volunteers” are MEANINGLESS because the future is unknowable. Second, even if you could be reasonably certain that force would yield net benefits, it’s extremely unlikely that the force would be applied in equal spades to the people receiving the benefit. Jessica pointed out a great example: we harvest your organs. Tough on you, but great for the people whose lives you selflessly save. Do you see the moral problem with imposing a cost on one party which gets distributed to another party? There’s a REASON why every major religion preaches against theft: because you can’t run a civilized society if property is not safe.

In the future, if you want to be a dumbfuck, could you do it elsewhere? We’re trying to have an intelligent conversation here.

pete says “Taxes are essentially voluntary in the same way that rent”. Holy mother of Jesus, would you take that shit out? It stinks. Okay, from now on, I’m imposing a voluntary 10% tax on your income. You MUST pay me 10% of every dollar you bring home. Why? Because my tax is voluntary. What’s going to happen to you if you don’t pay my taxes? I’m going to send my goons around and they’re going to fucking break your kneecaps, that’s what, asshole. If you don’t want to pay my tax, then don’t earn the income. Cuz it’s a voluntary tax, fuckface.

It’s *so* frustrating arguing with frigging morons. They look at the color red and call it green. I mean, how can you have a rational discussion with people who don’t even know their red ass from a green hole in the ground. You *know* why we’ve never suffered a zombie apocalypse, right? It’s because of people like pete: not enough brains to feed a zombie.

Oh my Lord. Oh, oh, my Lord. pete, the nincompoop, says “If you didnâ€™t pay, for example, your rent, that would be â€œinitiation of forceâ€ on your part, and your landlord would be justified to use force to recover whatever money was owed.” No. No, no, a thousand times no. How can you be opposed to something you DON’T EVEN UNDERSTAND THE BASIC PRINCIPLES OF? You’d be all like “Oh, I hate the sky because it’s so green”. Um, dude, it’s blue.

If a landlord lets you live on his property, it will be under the conditions of a rental agreement, a contract. Now, there are default terms for how a contract is enforced, called tort law. If you don’t like the government’s terms, you can always change them. In some rare cases the government won’t let you do that, like if the contract terms are unconscionable. So if the rental agreement said “You pay your rent or we break your kneecaps” it’s not likely that those terms could be enforced in a court of law. The terms are more likely to be reasonable, like “If you’re more than one month in arrears, the landlord can throw your stuff out on the curb and change the locks, at their sole option.” The “initiation of force” has nothing to do with the terms of this contract. You agreed to let the landlord throw your stuff out on the curb.

Renting is actually a bad example, because for every landlord there are five or ten tenants, and when it comes time to vote, the tenants have their way every time. Majority rule, mmmmmm, not always such a good thing.

John says “Your latest message above has zero useful content. Be polite. Please.” It’s useful to call idiots idiots, just as it’s useful to call a spade a spade. In this particular case, it’s useful to identify people who argue poorly, so that people who want to test their views against people with an opposing viewpoint can seek a quality discussion elsewhere.

Jessica says “Rail systems aren’t owned by private companies.” Actually, they are. Well, it can be a mix of in fee simple ownership, and use of an easement. But the ballast, the ties, the rails, and all the rest of the railroad infrastructure, are all privately owned. And taxed. Often to extinction (which is why so many railroads have been ripped out — because the taxing entity doesn’t recognize the existance of OOS (out of service) track, and they over-tax it and CAUSE railroads to remove rails they otherwise wouldn’t. So after the governments create this problem, they have to fix it by passing a “railbanking” law. It violates the easement by pretending that a railroad *could* be reinstalled on railbanked rights-of-way at any time, so that even though the tracks are gone and it’s now a paved trail, it’s still a potential railroad. They did this because of a case in Burlington, VT, where the landowner sued and won his easement back. Cost at least a half-million to buy it back from him.

>The point is that you canâ€™t argue that failing to pay taxes is initiation of force. because the government does not own me or my labor.

Suppose I own a factory, and supply you with working space, tools, and material, which you use to create something of value. My claim on a part of that value does not require that I own you or your labour (unless you’re secretly a Marxist).

Neither does a government’s claim to taxes require that it own you or your labour.

>Nor can it obligate me by giving me â€œservicesâ€ I do not want. I cannot walk up to you, say â€œIâ€™m guarding you from criminals, now pay meâ€. Thatâ€™s called a protection racket, and itâ€™s indistinguishable from your account of government.

It’s only indistinguishable if you haven’t read what I wrote. If I don’t want to pay taxes, then I simply refrain from earning income or making purchases within my government’s jurisdiction. In your “protection racket” account, that option is not available, so the analogy fails.

>’John says â€œYour latest message above has zero useful content. Be polite. Please.â€ Itâ€™s useful to call idiots >idiots, just as itâ€™s useful to call a spade a spade. In this particular case, itâ€™s useful to identify people who >argue poorly, so that people who want to test their views against people with an opposing viewpoint can >seek a quality discussion elsewhere.’

@ Russell: Funny, but I didn’t need anyone to call you anything to realize there is no point testing my views against yours. I think it was when you called me a “fucker” and insulted my country while arguing against something I never said. But enough troll food.

@Russell Nelson: “In this particular case, itâ€™s useful to identify people who argue poorly”
Indeed. Your own posts, by the way, are not improved by the ad hominems.
If you are so right as you imply, you could breathe, count to ten, and stop spewing insults, as anyone else in this thread is doing. JessicaBoxer and ESR are making similar points minus the barrage of expletives, somehow.

>If I donâ€™t want to pay taxes, then I simply refrain from earning income or making purchases within my governmentâ€™s jurisdiction.

I reject your implied claim that governments legitimately own the right to tax within their jurisdictions for exactly the same reasons that I consider protection rackets criminal. The owning-the-factory analogy doesn’t apply either, because government is not necessary to supply any of my factors of production. Yes, it monopolizes some of them by force – but this no no different than a protection racket that uses muscle to keep other “protectors” from operating on its turf, and conveys no legitimacy at all.

Somebody has to build the factory. Equally, somebody has to do many of the things that governments happen to do. The difference: esr and I believe that that somebody doesn’t have to be a government in the Weberian, monopoly-on-licit-violence sense of the term.

>True, but the private owner of the factory isnâ€™t necessary either, and only owns it through government-enforced property laws.

Government enforcement of property laws is a contingent historical fact, not a necessity.

I’m continually surprised that statists lean on this one so heavily, because property law is a dead cinch to privatize; it doesn’t have the significant externalities that (say) pollution control does. That is, economically, it is absolutely the weakest place to ground your argument.

Iâ€™m continually surprised that statists lean on this one so heavily, because property law is a dead cinch to privatize; it doesnâ€™t have the significant externalities that (say) pollution control does. That is, economically, it is absolutely the weakest place to ground your argument.

I suspect this stems from a specific source with the left; they view property (and, perhaps, all?) rights as flowing from a social compact, rather than from natural law.

Thus, government is required for property rights because property rights are something granted by the government, rather than government being one possible means to ensure and protect certain inalienable rights.

>Government enforcement of property laws is a contingent historical fact, not a necessity.
>
>Iâ€™m continually surprised that statists lean on this one so heavily, because property law is a dead cinch to >privatize;

You misunderstand me: I’m no statist, my post was intended as a critique of private property derived from the labour of others (or by mere assertion) and enforced through threat of violence. Whether that threat comes from the government or hired goons is immaterial. The legitimacy of a claim of ownership derives from the justness of the claim, not from having the means to enforce it.

But I’m curious: how do you propose to privatise property law without reverting to feudalism? Won’t the guy who hires the biggest army get the most property?

>But Iâ€™m curious: how do you propose to privatise property law without reverting to feudalism?

Pretty much the same way it’s been done historically (and very much pre-feudally) by English and Germanic tribal law, what developed into Anglo-American common law. For an early written source on this model see the still extant lawbooks of the Icelandic Commonwealth. It turns out that more-or-less isomorphic legal systems seem to arise anywhere that property rights can be asserted with net gain but conditions prevent the emergence of strong central chieftainships or states.

@Phil R.
>Somebody has to build the factory. Equally, somebody has to do many of the things that governments happen to do. The difference: esr and I believe that that somebody doesnâ€™t have to be a government in the Weberian, monopoly-on-licit-violence sense of the term.

You’re right, there are other ways to arrange for those things to be done.

In the case where the government is in fact providing certain public goods, is that government then entitled to tax income created using those public goods?

>Yes, it monopolizes some of them by force – but this no no different than a protection racket that uses muscle to keep other â€œprotectorsâ€ from operating on its turf, and conveys no legitimacy at all.

If you owned some farmland are you entitled to keep other “operators” from farming on your turf?

>I reject your implied claim that governments legitimately own the right to tax within their jurisdictions for exactly the same reasons that I consider protection rackets criminal.

Your argument seems to be founded on simply rejecting certain rights claims and accepting others. What’s to stop others doing the same? (e.g. I accept personal property as a right, but I reject private property outside of a social contract)

> Pretty much the same way itâ€™s been done historically (and very much pre-feudally) by English and Germanic tribal law, what developed into Anglo-American common law.
How do you get representative juries without coercion? Also, how do you do without subpoenas?

>In the case where the government is in fact providing certain public goods, is that government then entitled to tax income created using those public goods?

No. An organization analogous to a government that produced public goods would, at best, be entitled to usage fees on those goods — value received for value given.

>If you owned some farmland are you entitled to keep other â€œoperatorsâ€ from farming on your turf?

People are not to be treated as slaves or property. I find the implication of your question disgusting.

>Your argument seems to be founded on simply rejecting certain rights claims and accepting others. Whatâ€™s to stop others doing the same? (e.g. I accept personal property as a right, but I reject private property outside of a social contract)

Not all theories of property are alike, because only some theories of property rights correspond to a stable and sustainable set of Schelling points. You can try rejecting “private” property, but every attempt to actually do so has failed, because the attempt clashes with both human psychology and economic efficiency.

>What theory of value are you using here? Iâ€™d suggest that theyâ€™re entitled to extract whatever price the â€œmarketâ€ could bear.

And so they are. But the market does not include the use of force to compel persons to pay “service fees” for services they do not want.

>Exactly where am I treating people like property?

You appeared to be equating the people who are within the sway of a protection racket (or government) to farmland, in that the right to tax is like the right to harvest. If that was not your intention, you should be clearer.

>A governmentâ€™s right to collect taxes is a sustainable Schelling point.

This claim demonstrates that you do not understand the concept you are naming. A Schelling point is not dependent on reliable communication. That is, the fact that a tax collector has to persuade you that he is from the government before you are persuaded of the legitimacy of his claim on your wallet excludes the possibility that this is a Schelling point.

In general, no claims containing proper names can be Schelling points.

>This claim demonstrates that you do not understand the concept you are naming, … In general, no claims containing proper names can be Schelling points. … In general, no claims containing proper names can be Schelling points.

I presumed that by Schelling points you meant the Schelling points named after Thomas Schelling, in which case “Grand Central Station” is the canonical example. A Schelling point may rely on common knowledge: e.g. it’s common knowledge that you’re expected to respect “no trespassers” signs; it’s common knowledge that you’re expected to pay your taxes.

What would be the difference between a tax collector persuading you that they are the legitimate agent of the government and a security guard persuading you that they are the legitimate agent of the owner of a private property?

>You appeared to be equating the people who are within the sway of a protection racket (or government) to farmland, in that the right to tax is like the right to harvest. If that was not your intention, you should be clearer.

It’s always a good idea to be clearer, so I’ll attempt to do so. But the fact that others on this thread have understood my arguments without apparent difficulty suggests your reading comprehension could also be improved.

Trying to be clearer: the farmland was meant to be analogous to a government’s jurisdiction. Just as the landowner may prevent others from farming on that farmland, a government may prevent others from providing security services.

In this case citizens might be analogous to (voluntary) farm workers; the landowner has a claim to a part of the value created without actually owning the workers or their labour.

>And so they are. But the market does not include the use of force to compel persons to pay â€œservice feesâ€ for services they do not want.

As much as I dislike “argument by quotation”, I think this one makes my argument clearer.

The organizer of industry who thinks he has “made” himself and his business has found a whole social system ready to his hand in skilled workers, machinery, a market, peace and order — a vast apparatus and a pervasive atmosphere, the joint creation of millions of men and scores of generations. Take away the whole social factor, and we have not Robinson Crusoe with his salvage from the wreck and his acquired knowledge, but the native savage living on roots, berries and vermin.

â€” Leonard Trelawny Hobhouse

I believe that society in general “owns” something like “property rights” in the “whole social system”.

It takes resources to maintain and improve that social system, and society has the right to a part of the value created within that system.

So long as a government is representative of society, that government inherits that right and may exercise that right through taxation.

These taxes are not coercive, because you may choose not to participate in that system.

Choosing not to participate pretty much leaves you as a “savage living on roots, berries and vermin”. But this is pretty much the same as the “freedom to starve” accepted by libertarians.

>I believe that society in general â€œownsâ€ something like â€œproperty rightsâ€ in the â€œwhole social systemâ€.

It is not clear how “society” can legitimately enter as a term in any moral claim – society has no intentions other than the intentions of individuals and communicating subgroups within it, no moral agency, and thus no rights. But supposing it could, equating “society” with “government” requires another unjustified leap.

Can I get a certificate for my share of the putative property rights in the social system and cash it out? Until I can, your claim is not merely nonsense, but nonsense on stilts.

“Hi. I am the legitimate representative of society. I have a gun. Give me your left kidney now.” Your beliefs leave you with no place to stand against this; in order to object to it, you need to have a theory of individual rights which is morally prior to social claims.

>I presumed that by Schelling points you meant the Schelling points named after Thomas Schelling, in which case â€œGrand Central Stationâ€ is the canonical example.

Look deeper. Grand Central Station is a proper name, but the utility of it as a Schelling point does not depend on the name but on its being a singular place in gradients of transportation accesibility. No proper name can confer Schelling-pointness because in principle a Schelling point has to be one all participants can recognize without reliable mutual signaling.

>What would be the difference between a tax collector persuading you that they are the legitimate agent of the government and a security guard persuading you that they are the legitimate agent of the owner of a private property?

The security guard acts to defend a property right – he will stop me only if I do things I have no business doing, he does not attempt to deny my rights in my property. The tax collector is not waiting for me to commit or intend a crime; he exists only for and by theft.

>It is not clear how â€œsocietyâ€ can legitimately enter as a term in any moral claim – society has no intentions other than the intentions of individuals and communicating subgroups within it, no moral agency, and thus no rights.

Society is made up of individuals who have rights; if you don’t want to attribute rights to society itself, then just pretend I’m using shorthand to aggregate individual rights.

I did not “equate” government with society. I said that a (legitimate) government represents society, in the sense that a lawyer might represent a client without being “equated” with that client.

>Can I get a certificate for my share of the putative property rights in the social system and cash it out? Until I can, your claim is not merely nonsense, but nonsense on stilts.

No. Have you heard the parable about Solomon and the baby?

>â€œHi. I am the legitimate representative of society. I have a gun. Give me your left kidney now.â€ Your beliefs leave you with no place to stand against this;

This is a bit ambigous. If you intended that the gunman is, in fact, legitimate, see below. If you meant he was lying, then: “Hi. I am the legitimate landowner. I have a gun. Get off my property”.

>in order to object to it, you need to have a theory of individual rights which is morally prior to social claims.

I do have such a theory; I told you before that I accept personal property rights, and I certainly accept your right to your own body. Left kidneys are not Schelling points.

>Look deeper. Grand Central Station is a proper name, but the utility of it as a Schelling point does not depend on the name but on its being a singular place in gradients of transportation accesibility. No proper name can confer Schelling-pointness because in principle a Schelling point has to be one all participants can recognize without reliable mutual signaling

I’m not sure what your point is. Where is the proper name in the claim that a right to levy taxes is a Schelling point?

>The security guard acts to defend a property right – he will stop me only if I do things I have no business doing, he does not attempt to deny my rights in my property. The tax collector is not waiting for me to commit or intend a crime; he exists only for and by theft.

I think I’m getting an idea of your mental picture of a “tax collector”, so I’ll try for a closer analogy. You incur a (private) debt, you fail to pay, a debt collector comes to your house. You incur a tax obligation, you fail to pay, a tax collector comes to your house.

>That is, the fact that a tax collector has to persuade you that he is from the government before you are persuaded of the legitimacy of his claim on your wallet excludes the possibility that this is a Schelling point.

The fact that a property owner has to persuade you that he is the owner of a property before you are persuaded of the legitimacy of their claim on your wallet excludes the possibility that this is a Schelling point.

>>That is, the fact that a tax collector has to persuade you that he is from the government before you are persuaded of the legitimacy of his claim on your wallet excludes the possibility that this is a Schelling point.

>The fact that a property owner has to persuade you that he is the owner of a property before you are persuaded of the legitimacy of their claim on your wallet excludes the possibility that this is a Schelling point

What we have here is a libertarian pointing out the inadequacy of the “social contract” model of government legitimacy, and a statist arguing that the same inadequacy applies to the notion of private property,

If this is intended as a reductio ad absurdum, it backfires, creating an argument against both the statist view and the proprietarian libertarian view.

While ownership of personal possessions and the rights to occupy and cultivate land are derivable from natural law or natural justice, other forms of private property are at odds with this notion. For example, ownership of the actual land itself (it was always there!), of abstract financial instruments like currency or futures or mortgages, of massive entities whose value is orders of magnitude greater than could conceivably be created by one’s own labour, by inheritance, and so on.

These forms of property are enjoyed by very few, and with a few unedifying exceptions (say, criminal warlords) are legitimised by state power.This is precisely because they do not arise naturally. They just don’t sit well with libertarian ideals,

While statists are more consistent in this regard, their contract hasn’t actually been signed by anyone.
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>The fact that a property owner has to persuade you that he is the owner of a property before you are persuaded of the legitimacy of their claim on your wallet excludes the possibility that this is a Schelling point.

That persuasion can be done without reliable communication. If I see a fence around a house, and I walk towards the fence, and a man walks out of the house to the nearest point of the fence and looks at me, I’m pretty sure I’m looking at the property owner (a lawyer would say there’s a rebuttable presumption here). This vignette generalizes to other cases where the owner is asserting a defensive claim that stops at a place where the gradient of effort to assert control jumps upwards.

The taxation case is different. A man who forces his way onto my property and demands money from me could be a common thief or he could be a tax collector; I cannot tell until he presents something that he claims to be a credential, at which point we are (in principle) in an argument over whther the credential is valid and the law behind it is just and justly arrived at. We are far, far away from any Schelling point.

The means of effecting the collection isn’t pertinent to the question of its legitimacy.

I agree with pete that esr is making a false distinction by applying maximum scepticism to the tax collector , but accepting the owner’s claim as if it were self-evident. What ownership means, to what extent it is possible, and what is held to be “ownable”, all vary from place to place, time to time and opinion to opinion.

Consider a slightly different scenario:

You’re walking where you always walk, and encounter someone putting up a fence which blocks your path. They tell you can’t pass because they now own the land. You don’t know if this is true until you are shown a deed issued by [insert preferred legitimization agency here]. You are now in an argument about the validity of the deed and whether it was issued justly.

I see no sign of Thomas Schelling in this scene.

@esr: I didn’t quite follow this:

>This vignette generalizes to other cases where the owner is asserting a defensive claim that stops at a place where the gradient of effort to assert control jumps upwards

Does this mean that property extends to a point beyond which the owner can no longer practically defend it? If so, it sounds a bit wild-west, but it’s likely I’ve misinterpreted you.

>The means of effecting the collection isnâ€™t pertinent to the question of its legitimacy.

Correct, which is why pete’s talk of paycheck witholding is mere evasion of the underlying moral issue.

>I see no sign of Thomas Schelling in this scene.

That’s why I said “rebuttable presumption”. In fact, a fence around real property is one of the classic examples of a Schelling point. This is why, when homesteaders claimed unowned land, Anglo-American common law required to fence it in order for them to maintain a claim. At common law (and in equivalent systems of customary law worldwide) real property claims depended on the existence of Schelling points visible to reasonable persons.

>>The means of effecting the collection isnâ€™t pertinent to the question of its legitimacy.

>Correct, which is why peteâ€™s talk of paycheck witholding is mere evasion of the underlying moral issue.

You have this backwards. You started talking about the means of collection, because the means of collection is pertinent to the existence of a rebuttable presumption. You’re avoiding the question of legitimacy by picking and choosing which means of collection to apply to each claim.

that’s what I was saying all the time – of course the market is better than a democracy or dictatureship i.e. the rule of the lowest, because almost anything is better than that. The last three centuries limited the choices to only the three “popular” ways of arranging things, which are democracy, dictatureship, the market, or a combination of these three. Of these three, the market is best, but I can’t stop mourning the bit the limitation of the choice _itself_ and wondering about why was it thought for thousands of years that there aren’t only “popular” options on the table (see: http://upload.wikimedia.org/wikipedia/commons/0/0e/Aristotle-constitutions-2.png ), and why is it not thought anymore.

I wanted to pose a question to those of you advocating the whole “property comes from the government, so they can tax it” principle.

In the past few days, the Venezuelan government completed their seizure of all oil related assets in the country by seizing the various oil support company assets such as gas platforms, service ships and so forth. This was as a follow up to their seizure several years ago of all the oil drilling and pumping assets. Currently, Venezuela has “nationalized” all these assets, which were constructed and originated by mainly foreign companies and capital. It has done so without (AFAIK) any compensation to the creators of these assets.

If the Venezuelan government has the right to arbitrary taxation, as some of your seem to assert, do you find this behavior on Chavez’s part acceptable, and appropriate? If not, how exactly does it differ from the philosophy you are advocating?

@JessicaBoxer: what has the expropriation of assets by the government to do with the taxation of those assets, apart from joining both in a very negative light, especially because it’s ‘Big Bad Red Chavez’ doing it?

I can’t find any useful data right now, and don’t have the time, but I do know that when Chavez nationalized Sidor, a part of the Techint multinational that makes steel tubes, part of the agreement was compensation to Techint. Granted, Techint might not have liked it much, but it’s a far cry from ‘no compensation whatsoever’. In this light, are you arguing that any expropriation is bad/immoral, even with compensation?

Edit: wikipedia says ‘In 2007, PDVSA bought 82.14% percent of Electricidad de Caracas company from AES Corporation as part of a renationalization program. Subsequently the ownership share rose to 93.62% (December 2008).’ I know it shouldn’t be taken as a reliable news source, but there’s a citation right there. on the page.

>what has the expropriation of assets by the government to do with the taxation of those assets

What is the difference between expropriating 30% of my paycheck, or 30% of my oil company?

>but I do know that when Chavez nationalized Sidor, … part of the agreement was compensation to Techint.

If the compensation was fair, then why was the sale carried out by the army and not the local notary public?

If I take your car, and leave you five dollars for it, have I stolen your car or not? Does the five dollars make you feel better or worse?
If I take your oil company, worth a billion dollars, and give you fifty million in compensation, have I stolen your oil company or not?

Taxation provides (or should provide) to me an indirect benefit, in the form of better roads, transportation, education, etc. The (legal) expropriation does not provide that to my company, but does (should, again) to everyone else in the country, assuming all best scenarios, of course. The reality of that last statement is left as an exercise for the reader.

Even in this case, if the gummint takes away a piece of my land to build roads, I can benefit through better transport, shorter commuting times, and new commercial opportunities. In your example, the people in Venezuela might benefit through better redistribution of money inside Venezuela (Chavez might also pocket it all, yes). Sidor loses.

If you don’t use / don’t want to use any of those, you still benefit through having better educated neighbors, better commercial opportunities, jailed criminals, etc. You can of course argue that these are also better left to the free market, but I disagree (at least in the schools and jails part).

I still don’t understand how you want to convince us of the rightness of your opinion when you pick and choose the most loaded examples. Are you expecting people to say ‘Yes, I’m so sorry, I’m a lowly disgusting commie like Chavez, and you were right all along’?

I’ll probably get my ass handed to me with that last comment in this forum, or at least, there’ll be assertions by people that I can’t contradict, because I do not know about the subject that much. My main point is that you do yourself no favors by making that kind of examples to prove your point. The rest of the comment is probably old news here.

The answer to 2 is given in 1 That is to say, by taking extreme examples I want to allow your logic to lead you to a really bad conclusion, as you do in 1, tacitly justifying (to some degree) that which you recognize is manifestly evil.

I don’t justify jack. You give a loaded example, I try to work with it. Don’t point the blame on me, thank you very much. Come up with better examples instead of this.

I’ve said here before that extreme examples don’t work in practice as they do logically in theory. In theory, your extreme example refutes my? opinion, in practice, it makes me avoid your discussions because they try to make black and white of a world that’s not.

I’m sorry. Anger got the best of me. My opinion is that justifications can be made for expropriation and taxation, in certain situations.

Still, I don’t recognize the nationalization of enterprises in Venezuela as evil: I don’t hold a stake in them, I don’t know enough about it, and given this, I refrain from asserting an opinion on the matter.

Adriano, I am not entirely sure what a “loaded example” is. I imagine you are paralleling with “loaded question”, which is to say a question with an unjustified assumption. But you don’t explain what that assumption is, or in what way it is loaded. I’d appreciate a better explanation of why exactly you don’t like the example.

You say that extreme examples don’t work in practice as they do logically in theory. Since the thread on this discussion was fairly theoretical, I thought it beneficial to bring it back to a specific, practical example, that happened in the real world today. How exactly is that “theory” as opposed to “practice”?

I meant that your example carries so many implicit negative connotations (unless you root for the venezuelan official party) that it skews its interpretation.

I’d say that when you choose one of the most despised men by Americans (I don’t like him at all either, mind) to prove your point, when so many examples of expropriation are available, I find your example impractical, just as pure theory. I’m sort of a centrist, if it wasn’t clear by now.

> Iâ€™d say that when you choose one of the most despised men by Americans

You do know that the reason he is despised is because he does stuff like this, right?

What exactly would be the benefit of choosing a different example of “expropriation”? I could point out that Gordon Brown takes 50% from your income on the margin, or that Barak Obama intends to add $50,000 of unsecured debt onto the heads of every family in America[*] (though it will surely end up be much higher.) Or that he is printing funny money to allow him to “expropriate” the American car industry and the American banking industry. Or that half the voters in America don’t pay income tax, and thus don’t suffer many of the consequences of their vote. But presumably you are OK with these things. I need to choose an example that you find extreme, to illustrate where the present course may lead. Extreme depends on your perspective.

It seems that the only examples you consider acceptable are ones that are unconvincing to you. I imagine that that will not lead to very energetic debate.

[*] The putative banking crisis, we are told, is caused by large numbers of people taking large, unsecured loans that are so large they can’t ever expect to pay back. And Obama’s solution to fix this is to take a large, unsecured loan, that he has no hope of ever paying back. Does anyone else find this ironic?

I don’t know the exact facts in Venezuela but I think, if you worked from ChÃ¡vez’s facts, expropriation could be justified there (if any of you know some formal logic, I’m claiming his justifications are valid, but I make no claims as to whether they are sound).

ChÃ¡vez would claim that Venezuela’s oil belongs to “the people”. Foreign companies, with the help of an illegitimate (doesn’t represent the people) government, financed the construction of oil assets by expropriating the oil. Renationalisation in that case is just returning property to its rightful owner.

Chavez’s attempts to manipulate the electoral system to stay in power are egregious, but describing him as “manifestly evil” is a little overwrought. He’s not Hitler or Stalin. He’s not even Bush. How many wars did he start? How many people has he killed or tortured? He’s just messing with your preferred economic system.

As far as nationalising oil companies goes, I think the long history of foreign corporate activities in Latin America, which has involved a lot of taking and not a lot of giving, is to blame for that, and is one reason the Venezuelans voted for Chavez in the first place, despite their historically well-grounded fears that such a decision could result in external interference in their political affairs.

Think of it as the market at work: if you rip off your supplier for too long, your supply will be withdrawn.

(Note that I’m talking about big-picture history of the region, not the behaviour of this particular company.)

But even leaving aside the issue of actual bad behaviour, try this analogy: say you rent a house, you even paint it and so on, but the owner sells and the new one doesn’t like the deal you had and evicts you. Bad luck for you, but that’s the market too.

Oil companies don’t own the oil in the ground, they negotiate with somebody for the rights to extract it. In the real world that somebody is government. I don’t like that any more than you do, but nor do I want a situation where they can just come in and take it, which is what has happened repeatedly to weaker Latin American countries, with appalling consequences for their people.

(On a side note, when you say:

>half the voters in America donâ€™t pay income tax, and thus donâ€™t suffer many of the consequences of their vote.

> but describing [Chavez] as â€œmanifestly evilâ€ is a little overwrought.

You misunderstood my statement. I described his stealing of the oil assets of oil companies as manifestly evil, not the man himself. I agree, though with Adriano’s characterization of him as a “lowly disgusting commie.”

>say you rent a house, you even paint it and so on, but the owner sells and
> the new one doesnâ€™t like the deal you had and evicts you. Bad luck for you,
> but thatâ€™s the market too.

Does the new owner get my lawn furniture too? If the original owner leased the property to me for ten years, does the new owner get to shortcut the lease without negotiation?

I should also point out to Adriano that John here is indicating that he feels Chavez’s actions are justified to some degree, or to put it another way, he feels my example, which you thought outrageously extreme, is actually acceptable to some degree. Which just goes to show, “extreme” is a relative thing. Perhaps my next example should be the Japanese taking Nanking. Perhaps that is extreme enough that we can all agree that it was “manifestly evil?”

>>half the voters in America donâ€™t pay income tax, and thus donâ€™t suffer many of the consequences of their vote.
> are you advocating means-tested suffrage?

I am not an advocate of democracy at all. The ability to spend other people’s money without accountability is always a disaster.

In reading your postings, I KNOW I have spoken with you before and would like to talk to you, privately. You have my e-mail addresses and Yahoo IM link. PLEASE get in touch!! I would greatly appreciate it! Thanks!